[abridged]
The Schwinn family business was teetering on a financial precipice at the beginning of the 1990s. The company still had many popular bicycle models, but its business was faltering. At the corporate headquarters in Chicago, the managers of Schwinn were still in disbelief that their company could no longer sustain itself as a viable business. After all, this was Schwinn, the biggest bicycle name in the USA. How could the company fail?
Unfortunately for Schwinn, in the early 1990s Sears, Roebuck and Co. came out with a comparable model at a lower price. The result was that sales of Air-Dyne plummeted by 35%. Schwinn said goodbye to 8 million in profit. Without the Air-Dyne and exercise bicycle sales, Schwinn was in trouble.
The decline of the Air-Dyne and other exercise bicycles was a symptom of Schwinn’s larger financial problems. In the early 1990s, the company lost $2.9 million with outstanding debt $80 million. The caused Schwinn to violate one of its bank covenants. Schwinn’s bankers called a meeting to see if something could be worked out.
Despite being deeply in debt, Schwinn took a hardline position against its creditors. Edward Schwinn figured that the bankers wouldn’t want to lose their equity in Schwinn if the company declared bankruptcy. Unfortunately, for Schwinn this was a miscalculation. Frustrated with Schwinn’s excuses, the Banker’s increasingly began playing financial hardball.
In the early 1980s when Schwinn had struggled financially. The decision ws made to take out bank loans. The wary banks put in place strict covenants on the loans. The covenants were still in place during the early 1990s. The violation of the financial covenants meant that the banks were in the driver’s seat. They insisted that Schwinn prepare a financial recovery plan.
Some of the bankers began to send the loans to the workout department to see how much money they could recover from Schwinn. This was not only meant to put pressure on Schwinn to come up with a reasonable financial workout plan, but also was to hedge their bets on a company financial failure. The pride of the Schwinn family in its outright ownership of the company had come back to bite them.
Still, the fourteen beneficiaries of the trust gladly accepted dividends from Schwinn. They also played a role in not wanting Schwinn to take on public investors.
To be fair, the payments to the Trust stopped after Schwinn experienced financial difficulties in the 1980. When the good times started rolling again, the dividends were reinstated in 1987.
With growing financial pressures, the final payments to the family trust were made up until 1990. The family knew that a Schwinn bankruptcy could wipe out their payment for good. They were prepared to received nothing unless Schwinn survived the new crisis.
Predictably, the family members were hopping mad at the demise of the Schwinn business. They expressed themselves in no uncertain terms and the focus of their fury was Edward Schwinn.
The Schwinn family also was partly to blame. The company had passed up several offers for private investors to bail out Schwinn. On the insistence of Schwinn family--including Edward Schwinn--the company declined all offers. This was a mistake that would haunt the company until its very end.
Some of Schwinn’s dealers saw the writing on the wall and they began to carry Trek and other bicycle brands. For Trek, this strategy began to work and during 1990 and 1991. During that period, Trek moved from fourth to second rank in the bicycle industry.
With all the financial constraints, Schwinn finally pulled the plug on the money losing Greenville plant in 1991. The early 1980s decision to not modernize the Chicago factory came back to haunt Schwinn.
The closing of the Greenville factory combined with the globalization of the bicycle industry meant that Schwinn would never again be making bicycles in the USA.
The fabled Schwinn was beginning to teeter. Schwinn had taken a hit on its balance sheet in the early 1980s with the closing of the Chicago factory. The Greenville closing virtually wiped out its balance sheet.
Making matters worse, these were not just ordinary suppliers. They were producers of strong competitive bicycle brands such as Giant. The Asian suppliers even talked about taking over Schwinn and assuming its debt, but the deals did not pan out.
The suppliers saw the writing on the wall and quit sending bikes to Schwinn. This caused a death spiral for Schwinn. The banks were calling in their loans. The dealers were screaming for inventory. The family was carping about Schwinn leadership. The Schwinn Family Trust recipients were irate over a cessation of payments.
Ed Schwinn is often blamed for the Schwinn family business failure. Despite his calm demeanor during difficult times, he was in the unenviable position of being hit from all sides.
In the US, Chapter 11 allows for a company to stay in business while restructuring its debt obligations. Edward Schwinn’s hope was that he would be allowed to make changes necessary to emerge from bankruptcy as a stronger company. However, he was rolling the dice by putting Schwinn in the hands of a bankruptcy judge.
Things didn’t go well for Schwinn. Trying to reduce costs, the company laid off many employees, including a handful of Schwinn relatives. Key employees also were jumping ship if they found another job. The mood within the company was bleak.
The Schwinn bankruptcy also froze payments to many small businesses which were owed money by Schwinn. The small companies knew they would be at the end of a long line of creditors asking for compensation. They had to move on to other brands and would not wait for a new Schwinn to emerge from its financial difficulties.
China Bicycle which was one of Schwinn’s bicycle suppliers made a bid to acquire the company. Schwinn had previously purchased large amounts of China Bicycle stock. The Chinese company was wary that a competitor such as the Taiwanese company Giant might purchase Schwinn. They had no desire for their competitor to own any of their stock.
Another wild card was the Schwinn Family Trust. The Trust was the legal holder of the family business name. The main value for a company wishing to purchase Schwinn would be the Schwinn name. The lawyer for the Trust played hardball and stated that the family wanted compensation for the name.
The request for compensation for the Schwinn name caused a great deal of turmoil in bankruptcy court. Other companies would not want to acquire Schwinn without having legal right to use the family name. The right of the Schwinn Family Trust to the name could be challenged in court, but this would lead to significant delays. Without the family name as part of the deal, acquiring Schwinn could become a messy affair.
Just four years after purchasing Schwinn, in 1997 Scott Sports Group and Zell-Chilmark sold Schwinn to Questor Partners Fund for $86 million. Questor tried to breath new life into Schwinn again developing an updated line of historic models.
Questor also purchased GT Bicycles and merged it with Schwinn. This resulted in the production of the Schwinn Homegrown series and mountain style bikes. The Schwinn bikes were among the best quality sold in the big box stores.
This new strategy by Questor was not enough. In 2001, Schwinn/GT was once again in bankruptcy court staving off creditors. During the court proceedings, Pacific Cycle outbid Huffy Corporation to purchase the Schwinn/GT bicycle brand from Questor. The amount of the purchase was $86 million.
In Pacific Cycles, Schwinn was finally owned by a stable partner. Pacific Cycles moved the Schwinn headquarters to Madison, Wisconsin. They focused on selling Schwinn branded bicycles at low prices in companies like Sears, Kmart and Target. The Pacific approach for selling Schwinn bicycle combined with several other major brands worked quite well.
The corporate maneuvering saga wasn’t quite yet over for Schwinn. In 2004, Dorel Industries of Canada sensed an opportunity to strengthen its bicycle business. The company purchased Pacific Cycles and this meant that in 11 years Schwinn had changed hands four times.
Finally, Schwinn was in a corporate partnership that would last for many years. Pacific remain as a subsidiary of Dorel for more 15 years. During the period from 2004 to 2021, Pacific would accumulate many brands of bicycles , including Cannondale, GT (included in Schwinn purchase), Iron Horse, Mongoose, Murray, and Roadmaster.
Schwinn went from a family-owned bicycle company in 1992 to being purchased for $67 million by vulture capitalist Zell-Chilmark in 1993. In 1997, Schwinn was sold to the investment group Questor Partners Fund for $86 million making a nice profit for the vulture capitalist Zell-Chilmark. This purchase by Questor did not work out well and the Schwinn/GT brand was sold for $86 million to Pacific Cycle during a bankruptcy hearing in 2001.
The identity conferred upon Schwinn by Pacific Cycle was the antithesis of the vision of its founders during the early part of the 20th Century. The purveyor of high-quality American made bicycles sold through dedicated retailers was replaced by Asia-produced Schwinns marketed by Walmart, Kmart and Target.
Schwinn was not alone in this fate. The company was joined iconic brands such as the English Raleigh and the French Motobecane. The high-quality American and European bicycle makers from the 1970s and 1980s all were impacted by the globalization of the bicycle market. The three major bicycles companies that would prove their mettle in adapting to the new business climate were Trek, Giant and Specialized.
-Douglas F. Barnes
The Schwinn family business was teetering on a financial precipice at the beginning of the 1990s. The company still had many popular bicycle models, but its business was faltering. At the corporate headquarters in Chicago, the managers of Schwinn were still in disbelief that their company could no longer sustain itself as a viable business. After all, this was Schwinn, the biggest bicycle name in the USA. How could the company fail?
Decline of the Air-Dyne and Exercise Bikes Increases Financial Pressure
In the late 1980s, Schwinn’s profits from its traditional bicycles had evaporated. A sign of trouble was that the exercise bicycles were keeping the company financially afloat. Schwinn had a virtual monopoly on stationary exercises and the Air-Dyne in particular had very high profit margins.Unfortunately for Schwinn, in the early 1990s Sears, Roebuck and Co. came out with a comparable model at a lower price. The result was that sales of Air-Dyne plummeted by 35%. Schwinn said goodbye to 8 million in profit. Without the Air-Dyne and exercise bicycle sales, Schwinn was in trouble.
The decline of the Air-Dyne and other exercise bicycles was a symptom of Schwinn’s larger financial problems. In the early 1990s, the company lost $2.9 million with outstanding debt $80 million. The caused Schwinn to violate one of its bank covenants. Schwinn’s bankers called a meeting to see if something could be worked out.
Despite being deeply in debt, Schwinn took a hardline position against its creditors. Edward Schwinn figured that the bankers wouldn’t want to lose their equity in Schwinn if the company declared bankruptcy. Unfortunately, for Schwinn this was a miscalculation. Frustrated with Schwinn’s excuses, the Banker’s increasingly began playing financial hardball.
Schwinn Family Pride Didn't Help
The confrontation with the bankers in the early 1990s had been set up by an earlier decision not to raise money in the private capital markets. The Schwinn family did not want to have outsiders controlling the fate of Schwinn. This decision to rely on bank loans had the opposite of the desired effect. Instead of being dependent on outside investors, Schwinn became overdependent on the banks.In the early 1980s when Schwinn had struggled financially. The decision ws made to take out bank loans. The wary banks put in place strict covenants on the loans. The covenants were still in place during the early 1990s. The violation of the financial covenants meant that the banks were in the driver’s seat. They insisted that Schwinn prepare a financial recovery plan.
Some of the bankers began to send the loans to the workout department to see how much money they could recover from Schwinn. This was not only meant to put pressure on Schwinn to come up with a reasonable financial workout plan, but also was to hedge their bets on a company financial failure. The pride of the Schwinn family in its outright ownership of the company had come back to bite them.
The Family Trust
The Schwinn family Trust indirectly played a role in the demise of Schwinn. The Trust was originally set up to share a modest amount of Schwinn’s profits among a small group of heirs. Most heirs either were discouraged or had no interest in working for Schwinn.Still, the fourteen beneficiaries of the trust gladly accepted dividends from Schwinn. They also played a role in not wanting Schwinn to take on public investors.
To be fair, the payments to the Trust stopped after Schwinn experienced financial difficulties in the 1980. When the good times started rolling again, the dividends were reinstated in 1987.
With growing financial pressures, the final payments to the family trust were made up until 1990. The family knew that a Schwinn bankruptcy could wipe out their payment for good. They were prepared to received nothing unless Schwinn survived the new crisis.
Predictably, the family members were hopping mad at the demise of the Schwinn business. They expressed themselves in no uncertain terms and the focus of their fury was Edward Schwinn.
The Schwinn family also was partly to blame. The company had passed up several offers for private investors to bail out Schwinn. On the insistence of Schwinn family--including Edward Schwinn--the company declined all offers. This was a mistake that would haunt the company until its very end.
Schwinn Competitors Smell Blood
Meanwhile, Schwinn’s competitors were not sitting by idly. The Schwinn problems came at a fortuitous time for Trek. They were in the process of trying to strengthen their balance sheet and began to take sales away from Schwinn.Some of Schwinn’s dealers saw the writing on the wall and they began to carry Trek and other bicycle brands. For Trek, this strategy began to work and during 1990 and 1991. During that period, Trek moved from fourth to second rank in the bicycle industry.
With all the financial constraints, Schwinn finally pulled the plug on the money losing Greenville plant in 1991. The early 1980s decision to not modernize the Chicago factory came back to haunt Schwinn.
The closing of the Greenville factory combined with the globalization of the bicycle industry meant that Schwinn would never again be making bicycles in the USA.
The fabled Schwinn was beginning to teeter. Schwinn had taken a hit on its balance sheet in the early 1980s with the closing of the Chicago factory. The Greenville closing virtually wiped out its balance sheet.
Suppliers Turn into Competitors
The main producers of Schwinn bicycles in China and Taiwan were not being compensated for shipping their products. The banks were swooping in and taking any cash from the business to hedge their possible losses. In essence, the Bank loans were taking away any possible way for Schwinn to pay its suppliers.Making matters worse, these were not just ordinary suppliers. They were producers of strong competitive bicycle brands such as Giant. The Asian suppliers even talked about taking over Schwinn and assuming its debt, but the deals did not pan out.
The suppliers saw the writing on the wall and quit sending bikes to Schwinn. This caused a death spiral for Schwinn. The banks were calling in their loans. The dealers were screaming for inventory. The family was carping about Schwinn leadership. The Schwinn Family Trust recipients were irate over a cessation of payments.
Ed Schwinn is often blamed for the Schwinn family business failure. Despite his calm demeanor during difficult times, he was in the unenviable position of being hit from all sides.
Things Get Messy
Edward Schwinn also knew that his company was running out of options. He decided in October 1992 that the company had to file for bankruptcy to keep creditors at bay. Consequently, the storied family bicycle business filed for relief from paying its debt under Chapter 11.In the US, Chapter 11 allows for a company to stay in business while restructuring its debt obligations. Edward Schwinn’s hope was that he would be allowed to make changes necessary to emerge from bankruptcy as a stronger company. However, he was rolling the dice by putting Schwinn in the hands of a bankruptcy judge.
Things didn’t go well for Schwinn. Trying to reduce costs, the company laid off many employees, including a handful of Schwinn relatives. Key employees also were jumping ship if they found another job. The mood within the company was bleak.
The Schwinn bankruptcy also froze payments to many small businesses which were owed money by Schwinn. The small companies knew they would be at the end of a long line of creditors asking for compensation. They had to move on to other brands and would not wait for a new Schwinn to emerge from its financial difficulties.
China Bicycle which was one of Schwinn’s bicycle suppliers made a bid to acquire the company. Schwinn had previously purchased large amounts of China Bicycle stock. The Chinese company was wary that a competitor such as the Taiwanese company Giant might purchase Schwinn. They had no desire for their competitor to own any of their stock.
Another wild card was the Schwinn Family Trust. The Trust was the legal holder of the family business name. The main value for a company wishing to purchase Schwinn would be the Schwinn name. The lawyer for the Trust played hardball and stated that the family wanted compensation for the name.
The request for compensation for the Schwinn name caused a great deal of turmoil in bankruptcy court. Other companies would not want to acquire Schwinn without having legal right to use the family name. The right of the Schwinn Family Trust to the name could be challenged in court, but this would lead to significant delays. Without the family name as part of the deal, acquiring Schwinn could become a messy affair.
The Honeymoon for the New Schwinn Didn’t Last Long
Zell-Chilmark got off the line quickly. Along with Scott USA, the company developed new models and created a retro brand to cash in on Schwinn nostalgia. The company also was fast to adapt to new trends in both cycling and technology. However, the Scott USA and Schwinn combination was never a comfortable fit.Just four years after purchasing Schwinn, in 1997 Scott Sports Group and Zell-Chilmark sold Schwinn to Questor Partners Fund for $86 million. Questor tried to breath new life into Schwinn again developing an updated line of historic models.
Questor also purchased GT Bicycles and merged it with Schwinn. This resulted in the production of the Schwinn Homegrown series and mountain style bikes. The Schwinn bikes were among the best quality sold in the big box stores.
This new strategy by Questor was not enough. In 2001, Schwinn/GT was once again in bankruptcy court staving off creditors. During the court proceedings, Pacific Cycle outbid Huffy Corporation to purchase the Schwinn/GT bicycle brand from Questor. The amount of the purchase was $86 million.
In Pacific Cycles, Schwinn was finally owned by a stable partner. Pacific Cycles moved the Schwinn headquarters to Madison, Wisconsin. They focused on selling Schwinn branded bicycles at low prices in companies like Sears, Kmart and Target. The Pacific approach for selling Schwinn bicycle combined with several other major brands worked quite well.
The corporate maneuvering saga wasn’t quite yet over for Schwinn. In 2004, Dorel Industries of Canada sensed an opportunity to strengthen its bicycle business. The company purchased Pacific Cycles and this meant that in 11 years Schwinn had changed hands four times.
Finally, Schwinn was in a corporate partnership that would last for many years. Pacific remain as a subsidiary of Dorel for more 15 years. During the period from 2004 to 2021, Pacific would accumulate many brands of bicycles , including Cannondale, GT (included in Schwinn purchase), Iron Horse, Mongoose, Murray, and Roadmaster.
The 1990s and the Globalization of the Bicycle Market
The story of Schwinn can be seen as a reflection the new business climate of the 1990s. Gordon Gekko famously said in the movie Wall Street, “Greed is good.” The vulnerability of Schwinn was on clear display in this new age of financial wheeling and dealing accompanied by outsourcing of bicycle production to Asia.Schwinn went from a family-owned bicycle company in 1992 to being purchased for $67 million by vulture capitalist Zell-Chilmark in 1993. In 1997, Schwinn was sold to the investment group Questor Partners Fund for $86 million making a nice profit for the vulture capitalist Zell-Chilmark. This purchase by Questor did not work out well and the Schwinn/GT brand was sold for $86 million to Pacific Cycle during a bankruptcy hearing in 2001.
The identity conferred upon Schwinn by Pacific Cycle was the antithesis of the vision of its founders during the early part of the 20th Century. The purveyor of high-quality American made bicycles sold through dedicated retailers was replaced by Asia-produced Schwinns marketed by Walmart, Kmart and Target.
Schwinn was not alone in this fate. The company was joined iconic brands such as the English Raleigh and the French Motobecane. The high-quality American and European bicycle makers from the 1970s and 1980s all were impacted by the globalization of the bicycle market. The three major bicycles companies that would prove their mettle in adapting to the new business climate were Trek, Giant and Specialized.
-Douglas F. Barnes
